Accounting and international relations

Accounting and international relations:Britain,Spain and the Asiento treaty
Salvador Carmona a,*,Rafael Donoso b ,Stephen P.Walker c
a
IE Business School,Calle Pinar 15-1B,28006Madrid,Spain
b
Universidad de Sevilla,Avda.Ramón y Cajal,1,41071Sevilla,Spain c
Cardiff Business School,Colum Drive,Cardiff,UK
a r t i c l e i n f o a
b s t r a
c t
The boundaries between accounting and law are contingent on time–space intersections.Here,these margins are explored in the realm of international
relations by focusing on the Asiento ,an 18th century treaty granting Britain the monopoly to trade slaves with the Spanish American colonies.Although a relatively minor concern of treaty-makers,noncompliance with provisions of the Asiento by the South Sea Company placed
accounting centre stage in conflicts between Britain and Spain.In combination with geo-strategic and domestic political circumstances,reporting failures exacerbated the commercial dispute between the two nations which culminated in war in 1739.The accounting provisions of the Asiento are examined by drawing on managerialist and realist theories of treaty com-pliance.It is shown that British noncompliance with accounting obligations under the treaty was driven by realist self-interest and the maximisation of material gain.Given that such motivations dominated behaviour attempts to manage noncompliance through the routine processes and structures of international politics proved unsuccessful.Managerial devices such as diplomatic exchanges over treaty ambiguity and securing greater informa-tional transparency merely provided further opportunities for the pursuit of self-interest.It is suggested that divergent perceptions of the role of accounting in international relations stem from the unique political,legal,social and cultural configurations of nation states.The study highlights the limitations of accounting as an instrument of treaty verification.Its effectiveness in that capacity is diminished where there is no shared understanding of the significance,purpose,content and interpretation of accounting information.
Ó2009Elsevier Ltd.All rights reserved.
Introduction
In recent decades,a number of studies have examined the boundaries of accounting and its relationship with other disciplines (Burchell,Clubb,Hopwood,Hughes,&Nahapiet,1980;Hopwood,1983;Hopwood,1992;Klamer &McCloskey,1992;Miller,1998).Particular attention has been devoted to the interface between accounting and law because the law has had a ‘‘visibly significant influence on both accounting practice and thought”(Bromwich &Hopwood,1992;Freedman &Power,1992;Martens &
McEnroe,1991;Martens &McEnroe,1998;Napier &Noke,1992,p.30;Napier,1998b;Pong,1999;Sugarman,1995;Walton,1993;Walker,2004).Prior research has advanced understanding of the respective roles of the two disciplines and its practitioners in reform of the social and economic spheres (Napier,1998a )and has examined the subordi-nated status of accounting vis-à-vis law (Johnson,1981).Studies indicate that the dominant position of law has not been stable over time and space.Indeed,‘‘the emer-gence of accounting from under the wing of law can be seen as having given rise to numerous tensions”(Miller &Power,1992,p.232).Such tensions are not universal (Camfferman,2007)and it is suggested that their investi-gation be conducted ‘‘by reference to nationally and histor-ically-specific instances”(Miller &Power,1992,p.232).
0361-3682/$-see front matter Ó2009Elsevier Ltd.All rights reserved.doi:10.1016/j.aos.2009.07.008
*Corresponding author.E-mail addresses:salvador.carmona@ (S.Carmona),rdonoso@us.es (R.Donoso),WalkerS2@ (S.P.Walker).Accounting,Organizations and Society 35(2010)252–273
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Accounting,Organizations and Society
j o ur na l h om e pa ge :w w w.e ls e v ie r.c om /lo c at e /ao s
In this paper we seek to extend knowledge of the inter-face between accounting and law by venturing into the field of international relations(Carnegie&Napier,2002; Richardson&MacDonald,2002).This is attempted by examining an historical episode which focuses on the role of accounting in treaty compliance and enforcement–a subject which merits greater attention in both the account-ing and international relations literatures.
Our empirical focus is on the Asiento,the18th century contract under which Britain was granted a monopoly to supply slaves to the Spanish colonies in Latin America.In particular,we analyse the period1711–1739which spans the negotiations preceding the Asiento treaty and the cir-cumstances leading to the War of Jenkins’Ear between Britain and Spain.Our examination reveals the significance of various features of this time–space intersection.Britain and Spain had different legal,constitutional and socio-cul-tural traditions–most notably Britain boasted a system of common law and constitutional monarchy,whereas in Spain a system of civil law and an absolute monarchy pre-vailed(LaPorta,López de Silanes,Shleifer,&Vishny,1998). The observation period also witnessed diverse economic conditions in the focal countries;an upsurge of overseas trade(often termed the‘commercial revolution’)in Britain (Clapham,1949;Mathias,1969,pp.92–106)and depleted nationalfinances and substantial state intervention in Spain(Alvarez-Dardet,Baños,and Carrasco Fenech, 2002).From these divergent contexts emerged variations between the two countries in the demands made of and for accounting,control and accountability in international agreements.
As will be illustrated later,when combined with other sources of tension,disputes between nation states over accounting could become so heated as to culminate in armed conflict.In this way the paper also seeks to contrib-ute to another developing theme in accounting research.A number of scholars have investigated the impact of mili-tary crisis,and total war in particular,on the deployment and development of accounting technologies,accounting regulation and the advance of the profession(Gallhofer& Haslam,1991;Loft,1994;Walker&Shackleton,1995; Walker,2000).Other studies have enhanced our under-standing of the importance of administrative failures and accounting deficiencies in the conduct of wars(Funnell, 1990;Funnell,2005),shown how the deployment of accounting could condition the discourse of war and medi-ate relations between political and military complexes (Chwastiac,2001,2006),and illustrated the manner in which accounting can reflect and become embroiled in ideological contests during armed conflict(Fernández-Rev-uelta,Gómez,&Robson,2002).In the current paper we identify another dimension of the study of accounting and war:how the failure by one nation to account under treaty obligations could contribute to an impasse in bilat-eral relations which,when compounded by strategic and domestic factors,culminated in military aggression.
In focusing on the role of accounting in mediating rela-tionships between nation states the study engages with a sub-discipline of history which seldom features in accounting.During the nineteenth century it was in diplo-matic history that the advance of scientific method in his-torical scholarship primarily took place.Narrating histories of statecraft,foreign policy and high politics,as revealed in treaties,diplomatic papers and other official papers,dom-inated the history research agenda in nationalist and impe-rialist Europe.1Subsequently,the focus of historians shifted towards more expansive and inclusive agendas which encompassed the economic and socio-cultural foundations of international relations.With its emphasis on‘courts and cabinets’diplomatic history became perceived as the mori-bund study of power elites(Marwick,1989,pp.93–94).
Diplomatic history has often been degraded as the dry record‘‘of what one clerk wrote to another clerk”,despite the fact that what the bureaucrat inscribed may have im-pacted on numerous lives(Vincent,1996,p.69).More re-cently the essential focus of diplomatic history on sovereign states has been considered irrelevant in the con-text of declining territoriality and advancing globalisation (Maier,2000).While some commentators have perceived the demise of diplomatic history since1945(see,for exam-ple,Vincent,1996,p.151)others have sought its revival by accommodating wider frames of reference(Watt,Adams, Bullen,Brauer,&Iriye,1988).A number of diplomatic his-torians in the US in particular,have argued the relevance of their subject to contemporary geopolitics and globalisation debates,indicated the potential it offers for interdisciplin-ary engagement and critical approaches,and asserted the opportunities it provides for exploring identities,cultures and non-state actors in international relations(Hogan, 2004;Stephanson,1998;Zeiler,2001).
The current investigation is supported by a wide range of primary sources.Although the availability of archival materials has been regarded as a major constraint to per-forming comparative research in accounting history(Rich-ardson&MacDonald,2002),the case presented here draws on a wealth of surviving documents on international rela-tions.The use of material contained in the archives of the two focal countries concerned also offered the advantages of triangulation and helped expose differing interpreta-tions of the same events.Archival evidence for Spain was gathered from the Archivo General de Indias(General Ar-chive of Indias,AGI)–Spanish American Colonies,in Se-ville.This was supplemented by evidence gathered from the Archivo General de Simancas(General Archive of Siman-cas,AGS,in Simancas)and the Archivo Histórico Nacional (Archive of National History,AHN,Madrid).For Britain the principal source was state papers in the National Ar-chives,London.2Secondary sources included books and arti-cles on Anglo-Spanish relations during thefirst half of the eighteenth century.The majority of the latter sources were produced during the highpoint of diplomatic history,from the end of the nineteenth to the mid-20th century.
As well as attracting the attention of historians of diplo-macy,Anglo-Spanish relations have also begun to feature
1It should be noted that some scholars,particularly in continental Europe,distinguish diplomatic history from the history of treaties.The former concerns the history of relations between nations.The latter comprises two streams:(i)treaties and the history of international law,(ii) the history of treaties as reflective of the economic,ideological,social and political complexions of the states involved(see Toscano,1966,pp.1–7). 2The AGI is an essential source for examining the relationships between Spain and its overseas colonies.It is well preserved and easily available.
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in the accounting literature(Donoso,2008).The current paper differs from previous studies in a number of re-spects.Whereas Donoso(2008)draws on Spanish primary sources(mostly gathered from AGS)as the basis of a descriptive account of events in the period1737–1750, focusing on the War of Jenkins’Ear and the negotiations that led to a peace settlement,this investigation draws on sources located in Spain and Britain to offer a theoreti-cally informed exploration of the relationship between accounting and law in the realm of international relations for the period1711–1739.To achieve this we focus on accounting,transparency and reporting through the lenses of managerialist and realist approaches to understanding treaty compliance and noncompliance.
The paper is structured thus.In the following section we consider the literature on international relations,theories of treaty behaviour and the role of informational transpar-ency and reporting–including accounting–in compliance. We then describe the main features of the Asiento treaty and its conduct by the South Sea Company(SSC)(the Assi-entists).The formal requirement imposed on the SSC by the Asiento treaty to account to the Court of Spain is then related.The motives behind noncompliance with the terms of the treaty by the SSC are then explored.Responses to noncompliance and the conflicts which ensued,such as bilateral commissions and diplomatic exchanges,are examined in the context of managerialist and realist theo-ries of treaty behaviour.There follows a narration of how the failure to resolve disputes between Britain and Spain over accounting for the Asiento featured in discourses pre-ceding the outbreak of war.In the conclusion we reflect on the dynamic relationship between accounting and law and the implications of ourfindings for theories of treaty behaviour and the functioning of accounting as a technol-ogy of compliance.
Treaties,compliance and reporting
A treaty is a written agreement‘‘(i)between one or more States and one or more international organizations; or(ii)between international organizations,whether that agreement is embodied in a single instrument or in two or more related instruments and whatever its particular designation”(Reuter,1995,p.246).The agreement may be designated a contract,protocol,convention,pact or other descriptor.The specific term‘treaty’is usually ap-plied to international instruments relating to matters of particular import and solemnity,such as peace,disarma-ment and the determination of national borders(http:// /English/guide.asp).
Historically,treaties have been the principal instrument of international relations.The exclusive right of states to treat was established in Europe during the seventeenth century(Holzgreve,1989)and during the eighteenth cen-tury treaties became the main source of the law of nations (Nussbaum,1953,pp.144–174).Agreements involving several countries were often codified in a series of bilateral treaties between monarchical heads of state(as at the Peace of Utrecht,1713).Subsequently,multilateral instru-ments became more usual and were extended in the mod-ern age to subjects of common interest to the international community(Reuter,1995,pp.2–16).
Managerialism and realism
The history of international relations shows that na-tions do not always adhere to provisions stated in treaties. In consequence,there is much interest in treaty behaviour –comprehending the motives for noncompliance and the systems and mechanisms which encourage compliance (Mitchell,1994,p.28;Keeley,1998;Simmons,2000).Stu-dents of international regulatory regimes deploy two prin-cipal theories to understand compliance–the managerialist approach and the realist approach(Sim-mons,1998;Donnelly,2000).Fundamentally,managerial-ists assume that the behaviour of states is driven by normative expectations while mainstream realists argue the primacy of interest protection.
Proponents of the managerial approach refer to the wider notion of pacta sunt servanda,that is,treaties are binding(Chayes&Chayes,1995,p.8).In addition to explaining the legal and ethical motivations for compli-ance,managerialists perceive compliance as a behavioural expectation,a presumption,such that in practice nations have a‘‘general propensity to comply with international obligations”(Chayes&Chayes,1995,p.3).Conversely, noncompliance represents deviance(Chayes&Chayes, 1993)and results in nations incurring reputational costs (Simmons,2000).From a managerialist perspective inter-national relations takes place in a dynamic context from which may emerge three potential sources of noncompli-ance:(i)changed understandings of treaty provisions facil-itated by ambiguity and indeterminate language in the original treaty;(ii)nations’miscalculations of their own technological,scientific,military,financial or administra-tive capabilities to comply;and(iii)the emergence of uncontrollable socioeconomic or political changes since the treaty was signed(Chayes&Chayes,1995,pp.9–17).
Given these sources of noncompliance and the general propensity of states to adhere to their treaty obligations, managerialists consider that devising punitive enforce-ment mechanisms to secure compliance is needless. Rather,they contend that noncompliance‘‘can be managed by routine international political processes”(Chayes& Chayes,1993,p.204)such as dispute resolution and per-suasion,and through the provision of assistance to remedy incapacity to comply.
The managerial,norm-driven,view of treaty compli-ance has attracted criticism(Colgan,2006).Most notably Downs,Rocke,and Barsoom(1996,p.380)argue that sup-posedly high levels of treaty compliance is symptomatic of the fact that‘‘most treaties require states to make only modest departures from what they would have done in the absence of an agreement”.By reference to historical examples Downs et al.(1996)contest the managerialist explanations for noncompliance and observe that a state’s commitment to compliance is advanced‘‘cautiously or cynically”rather than genuinely(Simmons,1998,p.76). The authors emphasise the need for enforcement and pun-ishment regimes to make treaties stick as opposed to reli-ance on the mere management of dispute resolution and
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addressing incapacity issues.Such regulatory regimes be-come necessary because fundamentally,it is self-interest that dictates the willingness of states to comply with treaty provisions.
The argument that nations only comply with treaties when it is in their interests to do so is associated with real-ist theory,which portrays the international system‘‘as a brutal arena where states look for opportunities to take advantage of each other,and therefore have little reason to trust each other”(Mearsheimer,1994).Realism com-prises diverse streams.For example,biological realists emphasise the manner in which international politics are conditioned by the fundamentals of human nature,and in particular,the pursuit of egoism(Donnelly,2000,pp. 44–50).Early classical realists such as Machiavelli and Hobbes argued that men are competitive and protective, motivated to seek gain and glory rather than the pursuit of a common good.Given their egoistic motives men are conflictual and untrustworthy(Donelan,1990,p.23).Bio-logical realists contend that the behaviour of states can be understood as an extension of the self-centred individ-ual with the added dimension that in international rela-tions untrustworthiness and conflict are exacerbated by factors such as nationalism,cultural differences and less than perfect knowledge of the intentions of competitor states(Donelan,1990,pp.23–27).
As structural realists also emphasise,in the absence of an overarching common authority,the international stage is the site of an anarchic struggle for power,wealth and security between autonomous states(Donnelly,2000,pp. 81–89).Further,states not only seek the maximisation and protection of absolute gains of power and wealth but also the maximisation of gains relative to other states (Donnelly,2000,pp.58–60).This competitiveness reduces the scope for international cooperation,particularly in the longer term.In these contexts,cooperation becomes‘‘diffi-cult to achieve...and always difficult to sustain”(Mears-heimer,1994,p.12).
For the realist,competition persists within cooperative ventures such as treaties.Agreements which contain opa-que,complex and ambiguous provisions can offer addi-tional scope for the pursuit of self-interest.Such opacity render accusations of violation difficult to sustain and offer ‘wiggle room’when implementation issues arise or condi-tions change.Consequential attempts at dispute resolution provide an opportunity for a state‘‘to appear superficially reasonable while straight-forwardly pursuing its material self-interest”(Colgan,2006,p.55),and this is exacerbated by the dynamic character of international relations.The realist approach to compliance also recognises the impor-tance of the context in which the treaty was made and operates;this may present scope for invoking moral,ideo-logical or other reasons to legitimate violations.
Thus,in realist approaches to international relations the maximisation of the power and material self-interest of a nation are prioritised over moral and ethical consider-ations of treaty compliance(Donelan,1990,p.24).Indeed ‘‘realism maintains that universal moral principles cannot be applied to the actions of states”(Morgenthau,1954,p.
9).National governments behave as self-maximising ra-tional actors.If they calculate that the material benefits of treaty violation outweigh its costs it is in the state’s interest not to comply with all or some of the treaty’s pro-visions.Hence,for realists,treaty rules do not cause com-pliance.In practice treaties are frequently adhered to because they reflect the interests of powerful states or be-cause the costs of noncompliance are too high.
As the foregoing suggests,although its adherents may share some key assumptions there exists a variety of realist approaches to the study of treaty compliance.Relatedly, the extent to which the realist and managerialist positions can be characterised as polar extremes are challenged. There are commonalities and gradations.At a basic level both approaches accept that nations will often fulfil treaty commitments and both expect violations to occur(Mitch-ell,1994,pp.6–9).Further,managerialists concede that nations would not enter into treaties in thefirst place if it were against their interest to do so.Contemporary real-ists accept that normative behaviour features in the deter-mination of the costs and benefits of compliance and that the notion of making all decisions on the basis of a rigorous calculation of absolute and relative gains is unlikely(Cha-yes&Chayes,1993;Mearsheimer,1994).It can also be ar-gued that both approaches offer an overly simplistic notion of causality and behaviour in the complex realm of interna-tional agreements,which,in reality,involves mixed motive game playing and degrees of compliance in rapidly shifting contexts.
It is also important in the current study to recognise that compliance or noncompliance may be driven by forces within the state,such as the populace as a whole,the rul-ing elite or other influential parties.The demands of pow-erful domestic pressure groups are likely to be more immediate than assuaging the distant concerns of overseas nations.In the realm of modern environmental treaties,for instance‘‘Powerful non-state actors,including multina-tional corporations,non-governmental environmental groups,and scientists,often influence international politics both directly and by helping to define state interests”(Mitchell,1994,p.36).Downs et al.(1996,p.394)argue that the most obvious causes of noncompliance feature ‘‘the demands of domestic interest groups and the signifi-cant political benefits often associated with protection”. In relation to the case explored here noncompliance was particularly motivated by the British state’s pursuit of geo-strategic interests in Latin America activated through the agency of the South Sea Company.
Informational transparency and compliance
Students of international relations recognise the impor-tance of transparency,reporting,verification and monitor-ing to the achievement of treaty compliance.Whereas realists doubt the impact of such mechanisms on behav-iour,especially where the benefits of cheating are evident (Downs et al.,1996),managerialists contend that,given the propensity of states to adhere to treaty rules,such pro-cesses can encourage compliance.Consequently the design of the compliance system associated with an international agreement becomes significant(Mitchell,1994,p.52). Managerialists argue that compliance regimes focused on coercive enforcement are not viable.Rather a managerial
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strategy is necessary which reinforces the normative pre-dilection of states to adhere to obligations by removing obstacles to compliance in a cooperative spirit.A number of devices may be employed in this regard.These include establishing institutional arrangements for resolving dis-putes between parties over ambiguous treaty provisions; attempting to persuade a party to comply;and,where defi-cient,providing technical,administrative orfinancial capacity to enable compliance(Chayes&Chayes,1995, pp.24–28).Another,key,mechanism is to ensure informa-tional transparency:
The major goal of any treaty’s compliance information system is to maximize transparency.Transparency refers to both the amount and quality of the informa-tion collected on compliance or noncompliance by the regulated actors as well as the degree of analysis and dissemination of this information.Increasing transpar-ency is seen as an essential component of any prescrip-tion to increase compliance(Mitchell,1994,p.57).
Similarly,neoliberal institutionalist theories of inter-national relations emphasise the manner in which inter-national rules and organisations can encourage cooperation by requiring the gathering and distribution of reliable information about the behaviour of states. The exchange of‘‘high quality information reduces uncertainty”while asymmetric information,deception, non-disclosure and other impediments to data communi-cation encourage conflict(Keohane,1982,p.344).Inter-national cooperation is stifled by impediments to‘‘the honest sharing of information”(Morrow,1994,p.388). Political scientists also indicate that slippage from full compliance is unavoidable in real-world contexts where complete information and perfect observation(as in trea-ties monitoring)are not attainable(Bednar,2006).The temptation to cheat always exists,even when relations between parties are cooperative(Ostrom,1999).Bednar (2006,p.350)argues‘‘when we are asked to do some-thing that is costly for us to do,and we know that others can’t see our action perfectly,we shirk a little bit.The general phenomenon is true whether we are talking about a law,a pact among friends,an organizational norm,or a treaty between nations”.
The collection and distribution of information about a signatory’s treaty performance is thus widely perceived as essential to encouraging reciprocity,providing reas-surance to other parties that they are not being taken advantage of,reinforcing the adherence of independent actors to treaty norms,and deterring noncompliance (Chayes&Chayes,1995,pp.23–24,135–153).For man-agerialists transparency is an important factor in compli-ance because it enables the revelation of departures from prescribed conduct and allows the miscreant to be called to account.Essential to transparency is the reporting of data on treaty performance.In the case of trade treaties such as the Asiento,accounting was identified as an important device for monitoring,reporting and achieving transparency.
Regular,complete and accurate reporting is a key ele-ment of the achievement of treaty objectives and compli-ance(Mitchell,1994,pp.123–124).Reporting regimes feature significantly in contemporary treaties:‘‘So com-mon and embracing are these provisions that they risk information overload,in which reports,notices,requests for information far outstrip the ability of national and international bureaucracies to produce or to process and assimilate the product”(Chayes&Chayes,1995,p.172). Students of compliance explore the quality of extant reporting systems,the implications of the widespread use of self as opposed to independent reporting,the impacts of publication on compliance,and factors which incenti-vise and disincentivise the submission of comprehensive reports.In relation to the latter it has been suggested of environmental treaties that‘‘In self-reporting systems, states or other actors will not report if they believe that revealing their own noncompliance will prove more costly than remaining silent”(Mitchell,1994,p.144).Moreover ‘‘the refusal to report is often thefirst intimation of serious political resistance to compliance with basic treaty norms and it begins the mobilization of counterpressures”(Cha-yes&Chayes,1995,p.155).
The need to ascertain the reliability of self-reported data encourages the use of verification and monitoring procedures.The existence and activation of these processes encourage truth-telling by the declarant but,as in the case explored here,‘‘some reporting systems seem to be de-signed to make it difficult for outside agencies and parties to verify the accuracy and completeness of required re-ports”(Chayes&Chayes,1995,p.165).In instances where verification is compromised by the withholding,destruc-tion or loss of data,or where values of data disclosed are susceptible to subjective determination,the risk of inten-tional misreporting is increased.Verification and monitor-ing can also be complicated where reporting depends on affected individuals and corporations as opposed to gov-ernments,and where transparency involves the disclosure of confidential business information(Chayes&Chayes, 1995,pp.166–167,190–191).
The interdisciplinary study of treaty verification cur-rently explores the manifold issues and complexities of devising and implementing technologies of measurement (Avenhaus,Kyriakopoulos,Richard,&Stein,2006)as well as systems of data gathering and monitoring.During the eighteenth century,the period of the present study,verifi-cation relied heavily on data gathered from documenta-tion,oral testimony and inspection.3In respect of treaties concerning navigation and trade,evidence from books of ac-count,inventories and certificates could feature large.For example,in the commercial treaty concluded by Britain and France at Utrecht in1713,accounting was an important monitoring technology–merchants on both sides were to keep accounts and papers without the threat of‘‘search 3In modern times measurement technologies are to be found in treaties relating to nuclear proliferation,chemical and biological weapons and climatic change.Verification systems may comprise the collection of information gathered from data declarations and exchanges,physical inspections and monitoring,and the employment of surveillance technol-ogies such as satellites,aircraft and ground-based sensors(Tulliu& Schmalberger,2004,chap.10).Accounting also features in some treaty verification and reporting regimes.For example,in non-proliferation treaties the International Atomic Energy Agency has utilised nuclear ‘materials accounting’as a principal technique(Keeley,1998).
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